Budget tax hikes and financial gloom ‘acting as brakes’ on employment

Economic Slowdown and Its Impact on Employment

The global economy is currently experiencing a significant slowdown, which is having a profound impact on employment rates and investment activities. According to a recent report by the Recruitment and Employment Confederation (REC) and KPMG, companies are hesitant to invest and hire new staff until they see more momentum in the economy. This cautious approach is largely due to the uncertain economic environment, which has led to a decline in permanent staff vacancies at the steepest rate since August 2020. The report highlights that budget measures, particularly tax increases, are "acting as brakes" on hiring activity, as businesses struggle to cope with the higher costs of employing staff.

The study also points out that temporary billings have been especially hard hit, falling at the fastest rate since June 2020. This indicates that companies are not only reducing their permanent staff but also cutting back on temporary workers, further exacerbating the unemployment situation. Consultants have reported that redundancies at client companies are becoming more common, and the higher cost of employment, related to government policies, continues to weigh heavily on hiring activity. This trend is concerning, as it suggests that the economic slowdown is having a direct impact on the job market, leading to fewer opportunities for workers.

The "Wait and See" Approach to Hiring

Neil Carberry, the chief executive of the REC, has noted that firms are taking a "wait and see" approach to hiring until the economy shows signs of improvement. He emphasized that building business confidence takes time and real action, and the current economic uncertainty is deterring companies from investing in new staff. Carberry also pointed out that the upcoming tax rises and the overall fiscal gloom are creating significant challenges for businesses, making it difficult for them to navigate the economic landscape. These factors are acting as brakes on progress, slowing down hiring and investment activities.

The government’s budget measures, particularly the tax increases, have been a major point of contention for businesses. The budget introduced in October placed a significant burden on companies, with businesses being required to cover £25 billion of the £40 billion in tax hikes. The majority of these increases came from adjustments to employer national insurance contributions, which took effect in April. Business groups have warned that these additional costs would hit investment and hiring, as companies struggle to absorb the financial impact of the tax rises. The increased costs could also be passed on to consumers in the form of higher prices, further contributing to the economic slowdown.

The Human Cost of the Economic Slowdown

The impact of the economic slowdown is not just limited to businesses; it is also having a direct effect on workers and consumers. Official figures released last month showed a decline in the number of payrolled employees, which helped push the country’s jobless rate up to 4.4%. This data was the first to cover the month of November, which followed the budget announcement. Private sector surveys have suggested a pickup in redundancies, with recent S&P Global purchasing managers’ index readings showing that the pace of job cuts is at its highest level in four years. This indicates that the economic slowdown is leading to a significant increase in unemployment, with more workers losing their jobs as companies reduce their staff.

The human cost of the economic slowdown is evident in the stories of workers who have lost their jobs or are struggling to find new opportunities. For example, Sainsbury’s and BP are among the major employers that have announced job losses since the budget was announced. These layoffs have had a devastating impact on the lives of thousands of workers, who are now facing an uncertain future. The economic slowdown has also affected consumers, as businesses pass on the increased costs in the form of higher prices, reducing purchasing power and further slowing down economic activity.

The Government’s Defense of Budget Measures

Despite the criticism from businesses and the evident impact on employment, the Treasury has defended the budget measures, arguing that the tax increases were necessary to help fix the public finances and allow for long-overdue investment in public services. The government has consistently maintained that the budget tax measures were a one-off solution to address the £22 billion black hole in public finances, which it claims was left behind by the previous Conservative government. The Treasury has also emphasized that the growth agenda, which includes infrastructure and green energy investment as well as planning reforms, is expected to make a significantly positive contribution during the second half of the parliament.

However, economists have warned that the positive effects of the growth agenda may take time to materialize, and in the short term, the tax increases are likely to weigh on economic activity. The Bank of England has also slashed its forecast for UK growth this year, from 1.5% to 0.75%, citing the national insurance rise as a major factor. The bank expects that the increase in national insurance contributions will pull down employment, further exacerbating the economic slowdown. While the government remains optimistic about the long-term benefits of its growth agenda, the immediate impact of the budget measures is clear: businesses are hesitant to invest and hire, and workers are bearing the brunt of the economic slowdown.

The Broader Economic Context and Future Outlook

The economic slowdown in the UK is part of a broader global trend, as many countries face challenges related to inflation, supply chain disruptions, and geopolitical tensions. The trade tariffs imposed and threatened by Donald Trump in the United States have added to the uncertainty, with economists warning that such protectionism is generally negative for economic growth. The Bank of England has noted that it is too early to gauge the potential threats from these tariffs, but the overall impact of protectionist policies is likely to be detrimental to global trade and economic activity.

In the UK, the economic outlook remains uncertain, with businesses and consumers alike facing significant challenges. The government’s budget measures, while intended to address public finances, have had the immediate effect of slowing down hiring and investment. As companies take a "wait and see" approach, the job market continues to suffer, with redundancies increasing and unemployment rising. The human cost of the economic slowdown is evident, with thousands of workers losing their jobs and consumers facing higher prices. While the government’s growth agenda may offer some hope for the future, the immediate impact of the budget measures is clear: the economy is in a state of flux, and the road to recovery will likely be long and arduous.

In conclusion, the economic slowdown in the UK is having a profound impact on employment and investment, with businesses hesitant to hire and consumers facing higher prices. The government’s budget measures, particularly the tax increases, have been criticized for acting as brakes on hiring and investment. While the government remains optimistic about the long-term benefits of its growth agenda, the immediate impact of the budget measures is clear: the economy is slowing down, and workers are bearing the brunt of the downturn. As the global economic landscape continues to evolve, the UK will need to navigate these challenges carefully to avoid further economic stagnation and to restore business confidence.